Economic Growth

Retirement, social security and poverty in the US

This article is published in collaboration with NBER Digest.
A pair of elderly couples view the ocean and waves along the beach in La Jolla, California March 8, 2012.  REUTERS/Mike Blake   (UNITED STATES - Tags: ENVIRONMENT SOCIETY TPX IMAGES OF THE DAY) - GM1E8390ALN01

The option for early retirement was created by the Social Security Act amendments of 1961 Image: REUTERS/Mike Blake

Laurent Belsie
Economics Editor, The Christian Science Monitor
Share:
Our Impact
What's the World Economic Forum doing to accelerate action on Economic Growth?
The Big Picture
Explore and monitor how United States is affecting economies, industries and global issues
A hand holding a looking glass by a lake
Crowdsource Innovation
Get involved with our crowdsourced digital platform to deliver impact at scale
Stay up to date:

United States

Lowering of the minimum claiming age in 1961 reduced average monthly income and increased the poverty rate in old age for male-headed households.

Policy debates about how to reduce the projected divergence between currently promised Social Security benefits and the revenues that the system is expected to receive often include discussion of raising the minimum retirement age. In recent years, Australia, Austria, Germany, the United Kingdom, and other developed nations have raised the minimum age of early retirement. A new study examines how a decrease in the U.S. minimum claiming age, enacted in 1961, affected the living standards of retirees.

Image: NBER

The option for early retirement created by the Social Security Act amendments of 1961 lowered the minimum age at which individuals could claim benefits to 62. The benefits paid to an individual beneficiary were adjusted to reflect the age at which they began to be paid. Claiming earlier reduced an individual's annual benefits relative to what they would have been if the individual had claimed at the normal retirement age, which was then 65.

Gary V. Engelhardt, Jonathan Gruber, and Anil Kumar, in the study Early Social Security Claiming and Old-Age Poverty: Evidence from the Introduction of the Social Security Early Eligibility Age(NBER Working Paper No. 24609), find that the change in the claiming age resulted in an average decrease of 1.5 percent in Social Security income for male-headed families. The change was associated with a decrease in total income for the poorer half of households, and a large rise in elder poverty and income inequality.

The researchers compare men who retired before and after the decline in the minimum claiming age, in particular those born between 1885 and 1916. They find that the option to retire early proved so popular that the average age of claiming benefits fell by 1.4 years. The most common age for claiming benefits became 62. This led to a median reduction in Social Security income of 3 percent for male-headed families; for those at the 25th percentile of the Social Security income distribution, the decline was 4 percent.

Lower Social Security income was associated with lower total income, but only for those in the bottom half of the income distribution. A $1,000 boost in benefits was linked to a 6.7 percentage-point decrease in the poverty rate.

The reduction in the early retirement age coincided with a period of increasing generosity of Social Security benefits overall. Thus, the rise in the level of benefits in part offset the reduction for any individual who claimed early. The researchers point out that this is an important consideration when trying to project the impact of future policy changes.

Have you read?
Don't miss any update on this topic

Create a free account and access your personalized content collection with our latest publications and analyses.

Sign up for free

License and Republishing

World Economic Forum articles may be republished in accordance with the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International Public License, and in accordance with our Terms of Use.

The views expressed in this article are those of the author alone and not the World Economic Forum.

Related topics:
Economic GrowthFinancial and Monetary Systems
Share:
World Economic Forum logo
Global Agenda

The Agenda Weekly

A weekly update of the most important issues driving the global agenda

Subscribe today

You can unsubscribe at any time using the link in our emails. For more details, review our privacy policy.

Eurozone recovery begins and other economics stories to read

Kate Whiting

May 17, 2024

About Us

Events

Media

Partners & Members

  • Join Us

Language Editions

Privacy Policy & Terms of Service

© 2024 World Economic Forum